Three essays in labor, environmental, and behavioral economics

Hanig, Ross

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Description

Title

Three essays in labor, environmental, and behavioral economics

Author(s)

Hanig, Ross

Issue Date

2013-08-22T16:48:06Z

Director of Research (if dissertation) or Advisor (if thesis)

• Nelson, Charles H.
• Baylis, Katherine R.

Doctoral Committee Chair(s)

• Nelson, Charles H.
• Baylis, Katherine R.

Committee Member(s)

• Brazee, Richard J.
• Goldsmith, Peter D.
• Flint, Courtney G.

Department of Study

Agr & Consumer Economics

Discipline

Agr & Consumer Economics

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Environmental Economics
• Behavioral Economics
• Trade
• Wage Inequality
• North American Free Trade Agreement (NAFTA)
• Not in my backyard (NIMBY)
• Wind Farm
• Wind Turbine

Abstract

This thesis is made up of three papers in the areas of labor, environmental, and behavioral economics. The first paper examines the impact that trade liberalization has had on wage inequality in Mexico since the North American Free Trade Agreement (NAFTA) was enacted in the mid 1990s. The second and third papers examine the problem of how to boost support for land uses widely perceived to benefit society, but present net costs to their prospective host communities. Such land uses have been termed not-in-my-backyard or NIMBY projects. I use wind farms as the type of NIMBY project to test the ideas in the latter two papers. In the first paper, I attempt to isolate one piece of NAFTA’s effect on wage inequality. I match annual industry wage and employment data with data on the tariffs the U.S. and Canada impose on goods from Mexico. A difficulty in isolating NAFTA’s effects through changes in U.S. and Canadian tariffs on Mexican exports is that these tariffs are highly correlated with the tariffs that Mexico’s other major trading partners impose on imports from Mexico. Since exports to these countries impact Mexican wages, leaving these relationships out of a model for estimation will leave the estimates for the effect that U.S. and Canadian tariffs have on wages biased. Since tariff data for this period is available for one of Mexico’s other top importers, I include this data to help mitigate the bias. The result is that the estimates for the effect that U.S. and Canadian tariffs have increase several fold. However, because the U.S. and Canada had little room left to lower their tariffs on the manufactured goods evaluated here, the small changes in tariffs that occurred in the post-NAFTA period result in calculations that attribute a less than one percent change in inequality to changes in U.S. and Canadian tariffs on Mexican exports. Additionally, it has been widely noted that while Mexico has a low-skill advantage compared to the U.S. and Canada, it may not be abundant in low-skilled labor in the global sense. Namely at the same time the U.S. and Canada lowered tariffs on Mexican exports, they also lowered tariffs on Chinese exports. With China arguably being the most abundant country in the world in low-skilled labor, Chinese exports to Mexico’s NAFTA partners could well be expected to cut into demand for Mexican products. I account for this effect by interacting the tariffs the U.S. and Canada charge on Mexican exports with the tariffs they respectively charge on Chinese exports. Since the tariffs the U.S. and Canada charge on Chinese exports are correlated with the tariffs they charge on goods from their other major exporters, I include tariffs from these partners as well to cut down on bias. The result is that this China effect is statistically significant. However, since the U.S. and Canada had already brought their tariffs on Chinese exports down to very low levels by 1995, the small changes each made in the post-NAFTA period appeared to have caused only miniscule changes in inequality in Mexico. The second paper analyzes how the more directly someone in a prospective host community sees compensation as addressing their concerns over a proposed land use, the less likely the person may be to see the offer of compensation as a bribe. Other studies note an often significant bribe effect, but cannot distinguish why one form of compensation might be seen as a bribe while another worth the same amount of money might not be. The NIMBY literature notes that compensation perceived as appropriate is more likely to be acceptable, but offers reasons that can primarily only be applied ex post in determining why a given offer of compensation might be seen as appropriate. The theory developed here can be applied ex ante in developing compensation and mitigation packages that are likely to be seen as appropriate and therefore acceptable. The theory developed here was tested in a survey on central Illinois residents regarding their responses to offers of different forms of compensation and mitigation for a hypothetical proposed wind farm. This population was chosen as it is made up of residents who primarily live in areas that are likely to face future wind farm development. The results here can be interpreted as how individuals might initially react to a proposed wind farm with accompanying offers of compensation and mitigation. The results are consistent with the idea that the more (less) directly individuals see compensation or mitigation as addressing their concerns, the less (more) likely they are to see it as a bribe. The results are robust to different estimation methods and a number of specifications. The NIMBY literature notes that offering compensation can cause support associated with civic duty to decline. No such decline is detected in the research here. However, since the wind farm proposed in the survey used here poses few or no perceived threats to public health, it differs dramatically from the nuclear waste sites associated with this crowding out of support associated with civic duty. That support associated with civic duty does not decline significantly is important since for all respondents and those with initially neutral or lower support, civic duty does appear to be a driving factor behind individuals’ support for the wind farm proposed. Further, while only a minority of respondents initially opposed the wind farm, most of them did not hold what are often referred to as NIMBY attitudes. Most of those who opposed the wind farm also opposed wind power in general. Indeed, respondents’ support or opposition towards wind power in general was one of the strongest predictors of how much respondents supported or opposed the wind farm proposed. The results here suggest that overcoming opposition to wind power in general may be especially helpful in overcoming opposition to wind farms in individuals’ back yards. The third paper primarily examines the effect of others’ support on individuals’ support for a wind farm hypothetically proposed one mile from their home. It also investigates how others’ support may affect individuals’ support for wind power in general and how directly individuals see compensation as addressing their concerns. Others’ support is only found to significantly affect support for the wind farm among those who have neutral or lower support for wind power in general. It is especially noteworthy that others’ support significantly affects these groups since the finding is consistent with conformity as a driving force, but not reciprocity—two of the primary behaviors believed to motivate conditional cooperation. Others’ support will only move a reciprocator to engage in a kind act—one that s/he believes will confer some benefit to others or society. It is unlikely that those who have neutral or lower support for wind power believe hosting a wind farm constitutes a kind act. Alternatively, it could be that respondents in these groups saw high others’ support as signaling fewer impacts from the wind farm than they previously expected. For respondents in these groups, there was no significant difference in the impacts expected among those in the high treatment group versus those in the low group. However, the results for those with neutral or lower support for wind power may be sensitive to the small number of respondents who indicated these levels of support. It also appears that others’ support for the wind farm proposed positively affects individuals’ support for wind power in general. Whether this effect is long-lasting or fleeting cannot be determined from the data gathered. It also appears that others’ support positively affected how directly the following groups saw compensation as addressing their concerns: those with initially neutral or lower support for the proposed wind farm and those with neutral or lower support for wind power in general. While the effect of how directly respondents saw compensation as addressing their concerns is positively significant for all respondents, those with initially neutral or lower support for the wind farm proposed, and those with high support for wind power in general, it is not for those with neutral or lower support for wind power in general. Overall, the work here finds that others’ support does appear to have significantly affected individuals’ behavior in a real world setting—providing further evidence to the literature that conditional cooperation may matter in how individuals make significant economic decisions in their everyday lives.

Graduation Semester

2013-08

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Copyright 2013 Ross Leupp Hanig

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